Free CDBV Practice Questions

Question 1

An industrial distributor has entered a U.S. corporate Chapter 11 case with negative book equity. Its reorganization forecast is supported by customer contracts, achievable operating changes, and available, court-authorized financing that covers projected cash deficits and restructuring costs through emergence. The assignment is to value the operations under the proposed plan, not determine liquidation recoveries. Which premise fits the assignment and these facts?

Accepted Answer

Continued operation under the funded plan, including the costs needed to achieve it.

Answer

Orderly liquidation, because negative book equity precludes continued-operation value in a bankruptcy case.

Answer

Continued operation under the prepetition business model, excluding the costs of the proposed plan.

Answer

Deferral of the valuation until emergence, when the company's ability to operate can be observed.

Question 2

Reconstructing a manufacturer's forecast, an appraiser identifies the following annual amounts, in millions of dollars: EBIT of $18 after $4 of depreciation and amortization; cash taxes on operations before financing effects of $1; capital expenditures of $7; and operating net working capital increasing from $9 to $12. Operating net working capital excludes cash and interest-bearing debt. A separate financing schedule shows $2 of cash interest and $5 of principal repayment. What free cash flow to the firm should enter the WACC-based valuation?

Accepted Answer

$11 million

Answer

$4 million

Answer

$7 million

Answer

$17 million

Question 3

At 10 a.m., a Chapter 11 debtor's treasurer discovers that the account scheduled to fund that afternoon's postpetition payroll consists entirely of cash collateral subject only to one bank's valid lien. An existing payroll order permits the wage payments but expressly does not authorize use of cash collateral. The bank has not consented. Before treasury releases the funds, the restructuring adviser should recommend:

Accepted Answer

Obtaining the bank's consent or specific court authorization to use the cash collateral.

Answer

Releasing payroll under the wage-payment order and restoring the account from next week's collections.

Answer

Moving the required amount to a segregated payroll account before disbursement under the existing order.

Answer

Providing the bank a replacement lien on new receivables and releasing payroll without another order.

Question 4

A reviewer replaces the debt-cost input in a reorganized company's WACC with the 38% yield to maturity on its prepetition unsecured notes. Those notes trade at a deep discount because investors expect substantial payment shortfalls; the operating forecast instead assumes the company's supported post-emergence capital structure. What is the central objection to the replacement?

Accepted Answer

The notes' promised-payment yield need not equal the debt return required under the reorganized structure.

Answer

Debt cost should track the notes' contractual coupon because it determines the issuer's interest expense.

Answer

The quoted yield becomes suitable once it is reduced by the applicable statutory income-tax rate.

Answer

The quoted yield belongs in the equity-cost input because impaired debt has equity-like risk.

Question 5

Two valuations concern the same company on the same date. One measures stand-alone value to market participants; the other measures value to a named strategic acquirer. Only that acquirer can eliminate a duplicate distribution center, and no other market participant can obtain an equivalent benefit. The incremental cash flows have been substantiated. How should the appraiser distinguish the conclusions?

Accepted Answer

Include the savings in the acquirer's investment value, but exclude them from the stand-alone value.

Answer

Include the savings in both conclusions because an informed willing buyer would recognize their existence.

Answer

Exclude the savings from both conclusions until the acquirer has completed the operational integration.

Answer

Include the savings in market-participant value as a control premium rather than as operating cash flows.

Question 6

A debtor proposes to assume a below-market warehouse lease in a U.S. corporate Chapter 11 case. Counsel confirms that the lease is assumable under § 365(b)(1), no special exception applies, and adequate assurance of future performance has been established. The valuation recognizes the full benefit of favorable rent but leaves the rent arrears and the landlord's documented pecuniary losses caused by the lease breaches in a pool expected to receive only an unsecured distribution. Which adjustment is needed?

Accepted Answer

Reflect the required cure and loss compensation in the assumption cash flows, without double counting.

Answer

Retain the forecast because prepetition obligations remain payable at the projected unsecured recovery rate.

Answer

Remove the favorable-rent benefit until the arrears have been paid, even if prompt cure is assured.

Answer

Substitute market rent throughout the forecast and leave the arrears and losses in the unsecured pool.

Question 7

A lender's review reports a debt-service coverage ratio of 0.78 for the coming year. The numerator is cash available after operating payments, cash taxes, capital expenditures, and working-capital needs; the denominator is scheduled cash interest plus principal. A separate appraisal shows that assets at fair valuation exceed relevant debts. Which finding is supported by the coverage result?

Accepted Answer

Defined operating cash generation falls short of scheduled debt service, despite the fair-value asset surplus.

Answer

Assets are insufficient to satisfy debts at fair valuation, notwithstanding the separate appraisal's conclusion.

Answer

Operating earnings fail to cover interest, even before scheduled principal payments are taken into account.

Answer

A liquidation premise is required until operating cash generation alone covers every scheduled debt payment.

Question 8

Which proposed adjustment preserves consistency when applying peer EV/EBITDA multiples? A manufacturer and its guideline public companies have comparable expected growth, EBITDA margins, and operating risk. The manufacturer, however, must spend materially more per dollar of EBITDA to replace productive equipment. This is a recurring requirement, not a temporary catch-up program.

Accepted Answer

Support an EBITDA multiple adjustment with the target's lower cash conversion after sustaining investment.

Answer

Subtract sustaining capital expenditures from target EBITDA, then apply the unchanged peer EV/EBITDA multiple.

Answer

Use the peer multiple unchanged, then deduct next year's capital expenditures as a debt-like item.

Answer

Use the peer multiple unchanged because EBITDA excludes the accounting charges for productive equipment.

Question 9

What common-equity value is implied by these agreed restructuring assumptions? Operating enterprise value is $94 million and already incorporates ordinary operating liabilities through its working-capital convention, including $12 million of trade payables. It excludes $4 million of excess cash and nonoperating land worth $7 million. Exit debt and preferred claims have stipulated values of $58 million and $3 million, respectively. There are no other claims, assets, or adjustments.

Accepted Answer

$44 million

Answer

$32 million

Answer

$33 million

Answer

$47 million

Question 10

The unsecured class accepts a plan in a conventional U.S. corporate Chapter 11 case outside Subchapter V, but one impaired creditor votes against it. The effective-date value of that creditor's hypothetical Chapter 7 distribution is $260,000. The plan instead provides deferred payments totaling $300,000, with an agreed effective-date value of $235,000. All other confirmation requirements are satisfied. How does § 1129(a)(7) apply to this creditor?

Accepted Answer

The proposed treatment fails the creditor's individual Chapter 7 value floor.

Answer

Class acceptance satisfies the test even though this creditor voted against the plan.

Answer

The $300,000 nominal commitment exceeds the liquidation amount and therefore satisfies the test.

Answer

Payment feasibility controls the comparison, so the $235,000 present value is not decisive.

Free CDBV Practice Questions

Domain 1: Understanding the Bankruptcy Code and How It Impacts Valuation of Distressed Businesses

Question 1

Question 2

Question 3

Domain 2: Advanced Business Valuation

Question 4

Question 5

Question 6

Domain 3: Application of Business Valuation Concepts to Bankruptcy and Other Distressed Situations

Question 7

Question 8

Question 9

Question 10

That's 10 of 1,030